How to do a Company Voluntary Arrangement
If your company is under serious pressure, but should the historic debt be removed, the business remains viable, then a Company Voluntary Arrangement (CVA) could be the answer.
A company voluntary arrangement is a vehicle which allows the company to offer a settlement to its creditors. The company pays back a percentage of its debt over a fixed period – often 3-5 years. The creditors agree to accept the reduced payments in full settlement of the debt that they are owed.
There are significant advantages for both the company and creditors if a company voluntary arrangement can be agreed. The company structure and employees are maintained. This means important resources are not lost as they might be if the business was put into administration or went through a pre-pack liquidation. The company is also left in a much better trading position as the burden of its legacy debts is lifted. Creditors have the possibility of receiving some return on what they are owed which they would almost certainly loose if the business was wound up. They also have the opportunity of continuing to trade with the business into the future.
There are a number of steps that will need to be carried out if you feel that a company voluntary arrangement is the correct course of action for your business:
Once a company voluntary arrangement has been accepted, the directors have their work cut out to make sure that the company flourishes and the terms of the arrangement are maintained. Very often it is advisable to consider a management change which will be able to bring new ideas and energy to the company. This may not necessarily mean a significant cull of the current executives. However, at the very least a new non executive director should be introduced. The business may also require new capital to invest in new business development projects. The company insolvency expert will be able to advise about this.
The fees associated with carrying out a company voluntary arrangement will normally consist of an initial fee charged by the company insolvency expert. Additional Nominee and Supervisors fees will be charged by the insolvency practitioner. However, these will generally be taken from the ongoing payments that the company makes into the CVA. As such, the company will not have to pay these additional fees over and above what it is already paying to the CVA.